WTO Ministerial Conference in Bali: too good a prize to pass up – OECD

29/11/2013 – Op-ed by OECD Secretary-General Angel Gurría

As the OECD’s latest global economic forecast has confirmed, world trade is now growing at an extremely low rate. This brings into stark focus the need for trade negotiators at the WTO to cut a deal to bring a much-needed boost to world trade and the global economy. The deadline is fast approaching. As newly appointed WTO Director General Roberto Azevedo has recently warned, “it’s all or nothing,” with the make-or-break Ministerial meeting in Bali, from 3 to 6 December. The prize within reach is a Trade Facilitation Agreement with the potential to slash trading costs, create jobs and boost economic recovery, along with a range of measures addressing the concerns of least developed countries. It’s a deal we cannot now afford to pass up.

Trade facilitation is about simpler, speedier and more reliable border processes making it easier for goods and services to cross international borders. Countries need to understand this not a concession, but a step to boost their own domestic economies. Doing away with inefficient procedures and removing unnecessary delays will free countries from dead-weight costs that make goods more expensive for domestic producers and consumers.

Our global analysis shows that a comprehensive WTO reform package removing these barriers can reduce overall trading costs by over 15% in developing countries, and by 10% in more advanced countries. This is serious money: reducing trade costs by 1% could increase worldwide income by over USD 40 billion.  65% of these gains will accrue to developing countries.

Concrete experience shows that trade facilitation will create jobs byreducing the unit costs of production. Chile’s USD 5 million customs reform translated into annual savings of USD 12m to business. Singapore’s TradeNet system has delivered internal productivity and estimated annual savings of USD 1bn. Increased trade and effective controls help raise tax revenue: in Ethiopia tax revenues increased over 50% on the back of customs reforms that increased exports 200%.  In Peru, customs revenue more than tripled following trade facilitation reforms, even as tariff levels were reduced between 15% and 35%.

Today’s global economy is structured around value chains, with goods crossing borders multiple times as inputs and transforming progressively into final products. As things stand, inefficiencies at borders ‘tax’ trade not once but many times over. Access to competitively priced inputs is increasingly important for production in developed and developing countries alike.

Trade facilitation is just as important in improving export performance as it is for imports. Border inefficiencies discourage domestic producers, especially SMEs, from venturing into export markets. Every hour they spend dealing with red tape is one less for developing and producing goods and services or landing customers. Just by a simple step of streamlining trade documents, for instance, Africa could shave almost 3% off trading costs.

If this were not enough, our research shows implementing these reforms is cheap (between USD 5m-25m annually) compared to the benefits for the economy.  The biggest factor is not the cost of equipment, but development of the human resources and sustained leadership to change the culture in border agencies.  To address this, technical and financial assistance to support trade facilitation in developing countries has grown considerably over the last decade: donor support for modernising border rules and procedures almost quadrupled to USD 380m, in 2011. Transport and storage accounted for USD 11.5bn and over USD 600m went to telecoms.

Many countries are getting on with the trade facilitation job. It makes good economic sense.  The time has come for trade negotiators to see sense too and do the deal. 

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